The world seems to be on the cusp of major economic changes. For too long now, patently harmful economic ideology has been pushed onto the world under the garb of liberalization. These policies were designed to enhance the economic and by extension military power of already developed economies. The existing developing economies were relegated to the role of commodity producers who would buy the manufactures of the existing developed economies. Those developing economies that did develop did so by ignoring the Washington Consensus. When they bought into the particular set of policies that define the Consensus, they suffered a painful economic meltdown.
Another aspect of the Consensus was that there was a massive asset grab by the rich at the expense of the middle class. Over time, the middle class shrank. Its members moved in both directions: people becoming poor and people becoming richer. However, the number of people moving into the ranks of the poor was far greater than the number of people moving into the ranks of the rich.
Yet another aspect was that this was a period marked by deregulation. In some cases, deregulation helped and in other cases it proved to be a blunder if not an outright disaster. Take the case of telecommunications. Before deregulation, this area was controlled by stodgy monopolies which charged high prices and poor service for voice and data services. After deregulation, this area was shaken up and today consumers and businesses have low prices and high data transfer rates. Definitely a plus. The airline industry on the other hand has lurched from crisis to crisis (barring a few extremely well run airlines) since deregulation. In the US, airlines have become bankrupt several times. This is despite continuously rising demand for air travel. The financial services industry has also faced repeated crises. Each time, the disaster has been bigger than before. The end result is the situation today in which the global financial system is stuttering and threatening to shut down. This would have severe consequences for the real economy. Although the problem originated in one country, thanks to the interconnected nature of the modern world, virtually every country in the world is being affected to some degree or the other.
What will be the end result of this turmoil? For atleast a generation, there will be a switch back to greater regulation and an effort to smooth boom and bust cycles. However, there will eventually rise a generation to whom these events will be ancient history and who will be convinced that something like this cannot happen to them. And so the cycle will repeat.
Another aspect of the Consensus was that there was a massive asset grab by the rich at the expense of the middle class. Over time, the middle class shrank. Its members moved in both directions: people becoming poor and people becoming richer. However, the number of people moving into the ranks of the poor was far greater than the number of people moving into the ranks of the rich.
Yet another aspect was that this was a period marked by deregulation. In some cases, deregulation helped and in other cases it proved to be a blunder if not an outright disaster. Take the case of telecommunications. Before deregulation, this area was controlled by stodgy monopolies which charged high prices and poor service for voice and data services. After deregulation, this area was shaken up and today consumers and businesses have low prices and high data transfer rates. Definitely a plus. The airline industry on the other hand has lurched from crisis to crisis (barring a few extremely well run airlines) since deregulation. In the US, airlines have become bankrupt several times. This is despite continuously rising demand for air travel. The financial services industry has also faced repeated crises. Each time, the disaster has been bigger than before. The end result is the situation today in which the global financial system is stuttering and threatening to shut down. This would have severe consequences for the real economy. Although the problem originated in one country, thanks to the interconnected nature of the modern world, virtually every country in the world is being affected to some degree or the other.
What will be the end result of this turmoil? For atleast a generation, there will be a switch back to greater regulation and an effort to smooth boom and bust cycles. However, there will eventually rise a generation to whom these events will be ancient history and who will be convinced that something like this cannot happen to them. And so the cycle will repeat.
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